TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 1415
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.... was justified in canceling the order dated 22.09.2009 of Commissioner of Income Tax, Jalandhar-I, Jalandhar wherein approval u/s 80G(5)(vi) of the Income Tax Act, 1961 was denied to the assessee for the period of five years commencing from 2010-11. II. Whether on the facts and circumstances of the case ITAT was justified in non recording of finding in respect of violation of the provisions of section 80G(5)(iii) read with explanation 3 to section 80G(5C) of the Income Tax Act, 1961 without appreciating the fact that the grant of approval u/s 80G (5)(vi) of the Income Tax Act, 1961, all the conditions as laid down u/s 80G(5)(i) to 80G(5)(v) are to be fulfilled. III. Whether the Ld. ITAT was justified in cancelling the impugned order dated 22.09.2009 without taking into consideration the observations made by Commissioner of Income Tax, Jalandhar-I, Jalandhar in para 7.1 and 7.2 of his order. IV. Whether the ITAT was justified in cancelling the impugned order dated 22.09.2009 granting approval u/s 80G(5) (vi) by referring to previous years of the Income Tax Act, 1961 when doctrine of resjudicata is not applicable to the provision of Income Tax Act. V. Whether the ITAT was r....
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....aj Jain, learned senior counsel appearing on behalf of the assessee submits that no such proceedings were ever undertaken. This fact has not been controverted by Mr. Denesh Goyal, learned counsel appearing on behalf of the appellant. The assessee has also been granted exemption under Section 10 (23C)(vi) and (via) of the Act. Through order dated 23.03.2009, the Chief Commissioner of Income Tax, Ludhiana, had withdrawn the same. The basis for withdrawal was that during the course of assessment proceedings in respect of Assessment Year 2006-07, the Assessing Officer had noticed that the assessee was indulging in profiteering. Surplus to the tune of 18.59% to 28.66% for the last five years was found to have been generated, which was considered substantial. The assessee challenged the above order before this Court through C.W.P. No. 5562 of 2009 - Gulab Devi Memorial Hospital Trust, Jalandhar vs. Central Board of Direct Taxes and others, which was disposed of on 29.01.2010 in terms of the orders passed by this Court in C.W.P. No. 6031 of 2009, in which the orders passed by the Chief Commissioner of Income Tax, withdrawing the exemption, were quashed, by holding as under :- "8.14. W....
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....of exemption under Section 80G of the Act ? According to us, the answer to this question would be in the negative though the grant of exemption under Section 10(23C) and registration under Section 12A of the Act in favour of an institution would be essential and persuasive factors for the grant of exemption under Section 80G of the Act. For seeking exemption under Section 80G of the Act, an application in terms of Rule 11AA of the Income Tax Rules, 1962 (for short - the Rules) is required to be made. Section 80G(5) and Rule 11AA read as under :- "80 G. Deduction in respect of donations to certain funds, charitable institutions, etc. (1) xx xx xx (2) xx xx xx (3) xx xx xx (4) xx xx xx (5) This section applies to donations to any institution or fund referred to in sub-clause (iv) of clause (a) of sub-section (2), only if it is established in India for a charitable purpose and if it fulfils the following conditions, namely :- (i) where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of sections 11 and 12 or clause (23AA) or clause (23C) of section 10 : Provided that where an institutio....
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....) of section 80G shall be in Form No. 10G and shall be made in triplicate. (2) The application shall be accompanied by the following documents, namely :- (i) Copy of registration granted under section 12A or copy of notification issued under section 10(23) or 10(23C) ; (ii) Notes on activities of institution or fund since its inception or during the last three years, whichever is less ; (iii) Copies of accounts of the institution or fund since its inception or during the last three years, whichever is less. (3) The Commissioner may call for such further documents or information from the institution or fund or cause such inquiries to be made as he may deem necessary in order to satisfy himself about the genuineness of the activities of such institution or fund. (4) Where the Commissioner is satisfied that all the conditions laid down in clauses (i) to (v) of sub-section (5) of section 80G are fulfilled by the institution or fund, he shall record such satisfaction in writing and grant approval to the institution or fund specifying the assessment year or years for which the approval is valid. (5) Where the Commissioner is satisfied that one or more of the conditions l....
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....ities of the institution and the fulfillment of the conditions referred to in clauses (i) to (v) of Section 80G(5) of the Act, which inter alia provide that for grant of exemption under Section 80G, where the institution derives an income, such income would not be liable to be included in its total income under provisions of Section 11 and 12 or clause (23AA) or clause (23C) of Section 10. However, where an institution derives any income, being profits and gains of business, the condition that such income would not be liable to inclusion in its total income under the provisions of Section 11 shall not apply in relation to such income, if - (a) the institution or fund maintains separate books of account in respect of such business; (b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and (c) the institution or fund issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business; The other condition, which is required ....
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....h alone was permissible. The following paragraphs from the judgment of the Karnataka High Court in Visvesvaraya Technological University (supra) were relied upon by Mr. Goyal :- "32. If the grants, which, according to the university, it is entitled for under the provisions of section 23 of the Act of 1994, are added to the receipts as per the income and expenditure account perhaps surplus figures would further enhance by about 20 per cent. Thus, the receipts as per the income and expenditure account, reflected in the tables would show that they are exorbitantly higher than the actual expenditure and in any case cannot be treated as "incidental surplus". It is also evident from the fact that even after incurring expenditure during all these years the university has at its disposal about 500 crore rupees as surplus. 33. We make it clear that we are not expressing any opinion on the question whether the university should collect such huge sums from students under different heads. But the fact remains that the university collect huge sums, 3-4 times more than the requirement. Such "surplus", in our opinion, cannot be stated to be incidental. It is not in dispute that huge amounts a....
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....s not justify the claim of the university that the receipts are only in the nature of surplus and not profit. As observed earlier, surplus funds could be collected, or these could be incidental surplus, to meet contingencies or for spending during the subsequent year for specific purpose for which it was collected and not for investing the same in fixed deposits for earning income by way of interest. 39. It is true that after meeting expenditure, a surplus results incidentally from activity lawfully carried on by the educational institution. As long as the surplus is reasonable, any University or an institution would not cease to be one existing solely for educational purposes with the object not to make profit. The Supreme Court, in Aditanar (supra), has observed that the decisive or acid test is whether on an overall view of the matter, the object is to make profit. If we apply the doctrine of "reasonable surplus" in one case it cannot be stated that the " surplus" with the University is reasonable. Indubitably an educational institution need to plan their investments and expenditure in such a manner and they may generate reasonable surplus taking into consideration, apart from....
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....he Income-tax Act, observed that the test that must be applied is not whether as a matter of fact an activity result in profit, but whether the activities carried on with the object of earning profit, merely because the predominant object of the activity involved in carrying out the object of education and if the institution is generating huge income, which could be avoided by giving substantial relief to the students studying in the affiliated colleges and registered with the university, such income cannot be termed as reasonable surplus. The observations of the Supreme Court in Aditanar (supra) were followed by several High Courts. Keeping an overall view of the matter, we are of the view that the university though not set up for the purposes of profit, is systematically making profit by receiving huge amounts under different heads though they are legitimately entitled for non-lapsable grants from the Government for all practical purposes. 51. The university claims that the main source of its income consists of grants received from the Government as contemplated by section 23 of the Act of 1994 and in addition thereto they are receiving funds under different heads from the stud....
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....lauses shall not be included - xx xx xx (23C) any income received by any person on behalf of - xx xx xx (iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government;" The assessment order was challenged by the University by way of an appeal filed before the Appellate Authority, which was dismissed. Against that order, the assessee preferred an appeal before the Tribunal, which also met the same fate, leading to the filing of an appeal under Section 260-A of the Act before the Karnataka High Court. As noticed above, there were primarily two grounds, on which the assessee therein had been denied exemption under Section 10(23C)(iii) (ab), which were that the University was indulging in profiteering and that it was not wholly or substantially financed by the Government. While considering the first issue, the Karnataka High Court held that since the surplus generated by the University was substantial, not incidental, was being accumulated year after year and had not resulted in lowering of fee in the subsequent years, the assessee therein was in....
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....ance with the powers vested in the University under Section 23 of the VTU Act. The difference between the fees collected and the actual expenditure incurred for the purposes for which fees were collected is significant. In fact the expenditure incurred represents only a minuscule part of the fees collected. No remission, rebate or concession in the amount of fees charged under the different heads for the next Academic Year(s) had been granted to the students. The surplus generated is far in excess of what has been held by this Court to be permissible (6 to 15%) in Islamic Academy of Education and another vs. State of Karnataka and others4 though the percentage of surplus in Islamic Academy of Education (supra) was in the context of the determination of the reasonable fees to be charged by private educational bodies. 9. As against the above, the amount of direct grant from the Government has been meager, details of which are being noticed separately later in a different context. The University nevertheless has grown and the number of private engineering colleges affiliated to it had increased from about 64 to presently about 194. The infrastructure of the University has also incre....
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....s and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied - the purpose of education should not be submerged by a profit making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on " for profit" . No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons. xx xx xx xx 19. It is clear, therefore, that the Uttarakhand High Court has erred by quoting a non existent passage from an applicable judgment, namely, Aditanar and quoting a portion of a property tax judgment which expressly stated that rulings arising out of the Income Tax Act would not be applicable. Quite apart from this, it also went on to further quote from a portion of the said property tax....
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....ical University's case (supra) and Queen's Educational Society's case (supra). It would depend interalia on how the surplus is utilized. However, on the second issue, which was whether the University was directly or substantially financed by the Government, to bring it under Section 10 (23C) (iiiab), the Apex Court held against the University, and therefore, on this count, dismissed the assessee's appeal by holding as under :- "14. Reliance has been placed on the judgment of the High Court of Karnataka in Commissioner of Income-tax, Bangalore vs. Indian Institute of Management , particularly, the view expressed that the expression "wholly or substantially financed by the Government" as appearing in Section 10(23C) cannot be confined to annual grants and must include the value of the land made available by the Government. In the present case the High Court in paragraph 53 of the impugned judgment has recorded that even if the value of the land allotted to the University (114 acres) is taken into account the total funding of the University by the Government would be around 4%-5% of its total receipt. That apart what was held by the High Court in the above case, whil....
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....exemption under Section 80G of the Act from the year 1997 till the passing of the impugned order. Further, the finding of the Tribunal, that the assessee has never mis-utilized its funds, has not been assailed before us. The generated surplus having been ploughed back for expansion purposes also remains undisputed by the Revenue as no challenge to the same has been made. In this regard, the following observations of the Tribunal, which are relevant, are as under :- "... The learned CIT-I, Jalandhar has not properly appreciated the utilisation of the funds by the assessee. As per record produced by the assessee before us in the assessee's paper book, which clearly shows that the funds of the institution have been almost fully utilised or in fact, utilised even out of earlier savings. The learned CIT-I, Jalandhar has not taken thoroughly to consider the issue about the application of incomes which as per record has fully been utilised by the assessee as capital expenditure. Detail at page 7 of the assessee's paper book showing receipts, expenditure (not including capital expenditure), capital expenditure, income/surplus of receipts over expenditure, income applied for the ch....
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....n the Income Tax Act, 1961. Exemption contemplates profits/surplus. If an institution is not expected to make any surplus or generate any income there was no need for providing for any exemption. Therefore, the view taken by the learned CIT-I, Jalandhar regarding the assessee having generated surplus even for claim of depreciation is not tenable in the eye of law and keeping in view the aforesaid discussion, with the support of the decision rendered by the Hon'ble Karnataka High Court in the case of CIT Vs. Society of Sisters of St.Anne, reported at 146 ITR 28 and the decision of the Hon'ble Gujarat High Court in the case of Satya Vijay Patel Hindu Dharmashala trust Vs. CIT, Gujarat-I, reported at 86 ITR 683. Now we want to discuss the intention of the assessee trust whether the assessee trust is running for making the profit or not. As the learned CIT-I, Jalandhar in the impugned order at page No.2 para No.3 is of the opinion that the trust appeared to be engaged in profiteering rather than in charitable and philanthropic activities as contemplated in the objects of the trust. By reading these words of the learned CITI, Jalandhar in the impugned order, we are of the consid....
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....n in Column No. 6, though shown to be after applying the formula of the figure arrived at under Column No. 5 divided by the figure arrived at in Column No. 4 x 100, actually and factually should be the figure arrived at in Column No. 5 divided by the receipts shown in Column No. 1 x 100. The above table clearly shows that the respondent-assessee has utilized its surplus only for charitable purposes. Mr. Goyal has also neither argued nor drawn our attention to any material on record to the contrary. The charges for its services were also considered by the Tribunal and were found to be extremely reasonable. The same are reproduced below :- "GULABDEVI MEMORIAL HOSPITAL TRUST JALANDHAR List of Hospital Charges with effect from 01.03.2008 1. Registration Fee 20.00 Re Visting Fee 10.00 2. Admission Fee General Ward 60.00 Private Ward 70.00 3. Ward Charges General Ward 100.00 Emergency 200.00 Private Ward 600.00 ICU 1500.00 4. Operation Charges A) Major Operations Nephrectomy (Removal of Kidney) 3000.00 Phefofithotomy (Removal of Kidney....